Stewart, Peter Mark v The State of Queensland [1995] FCA 817

CATCHWORDS

BANKRUPTCY - Application under s.153(2A) of the Bankruptcy Act 1966 (Cth) - arrears of child support pursuant to administrative assessment - consideration of the statutory scheme for the administrative assessment and collection of child support - upon deduction of child support from wages or salary as child support debt due and payable by supporting parent - Child Support Registrar unable to appropriate payment to earlier and different debt - exercise of discretion to grant discharge on conditions.

Bankruptcy Act ss.153(1), 153(2A), 153(2)(c)

Child Support (Assessment) Act 1989 (Cth) ss. 29-31, 36-37, 77-79

Child Support (Registration and Collection) Act 1988 (Cth) ss.5, 17, 24A, 30, 43, 45, 46, 49, 51, 52, 66, 67

Re Walsh; Ex parte Deputy Commissioner of Taxation (1982) 42 ALR 727 - Refd.

Re Beckwith; Ex parte Power & Power (1993) 43 FCR 256 - Refd.

Re Reilly; Ex parte The Debtor (1979) 36 FLR 268 - Refd.

Re Peter Mark Stewart; Ex parte Peter Mark Stewart

No. QB 21 of 1993

Cooper J., Brisbane, 10 October 1995

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION

BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND

No. QB21 of 1993

RE: PETER MARK STEWART

EX PARTE: PETER MARK STEWART

Applicant

JUDGE MAKING ORDER:Cooper J.

WHERE MADE: Brisbane

DATE OF ORDER: 10 October 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The applicant's liability for the arrears of child support outstanding at 5 January 1993, after crediting against that liability for the benefit of the payee of the child support any sums paid by the applicant or deducted from his earnings since 5 January 1993 as penalties for late or non-payment of child support since that date, be discharged.

2. Each party bear its own costs of and incidental to the application.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION

BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND

No. QB21 of 1993

RE: PETER MARK STEWART

EX PARTE: PETER MARK STEWART

Applicant

CORAM: Cooper J.

PLACE: Brisbane

DATE: 10 October 1995

REASONS FOR JUDGMENT

Peter Mark Stewart ("the applicant"), was made bankrupt on his own petition on 5 January 1993. On 19 May 1994 the applicant was by force of Division 3 of Part VII of the Bankruptcy Act 1966 (Cth) discharged from bankruptcy.

On 5 January 1993 the applicant owed an amount of $9,377.49 as a consequence of an administrative assessment of child support having been made by the Child Support Registrar ("Registrar") or a Deputy Child Support Registrar ("Deputy Registrar"). At the time of his becoming bankrupt the applicant was employed by the Department of Defence as a cleaner at the RAAF Base at Amberley, Queensland. At that time he was earning a gross sum per fortnight of $1,054.00 from which was deducted $442.10 including $207.00 paid to the Child Support Agency ("the Agency"). Throughout the period of his bankruptcy the sum of $207.00 has continued to be deducted. The applicant now works as a gatekeeper at the RAAF base and $227.79 per fortnight is deducted from his salary and forwarded to the Agency. His net pay after
deductions is approximately $650.00 per fortnight.

The applicant has applied pursuant to s.153(2A) of the Bankruptcy Act 1966 (Cth) for an order that his discharge from bankruptcy shall operate to release him from liability to pay arrears due under the assessment. In the absence of such an order the discharge of a bankrupt from a bankruptcy does not release the bankrupt from any liability under a maintenance order or agreement (s.153(2)(c) of the Bankruptcy Act). An administrative assessment is a maintenance order for the purposes of the section.

The Deputy Registrar appeared by counsel and opposed the application on the ground that there was no debt to discharge, the monies received during the bankruptcy having been applied to discharge the debt due as at 5 January 1993. The consequence is, if that contention is correct, that the applicant, notwithstanding the deductions during his bankruptcy, is treated by the Deputy Registrar as presently in default in respect of instalments which fell due during that period and is liable to pay penalties for such default.

The Deputy Registrar, in an affidavit of Mark Lindsay Curran, a technical adviser in the Registrar's office, contends that the Agency by computer program applies payments received in reduction of the oldest instalments of child maintenance arrears and then in reduction of penalty. As to the applicant's financial position he deposed :-

"5. I have persued [sic] the said computor [sic] records and on the basis of that perusal I verily believe that the Applicant's liability to pay child mainenance [sic] arrears (exclusive of penalties for late payment) is as follows:

(a) As at the date of Bankruptcy (5/1/93)

Total of child maintenance

liability payable under

administrative assessments 12,047.12

LESS: total payments received

up to 5/1/93 3,702.60

Balance of child

maintenance liability as at

5/1/93 (provable debt) 8,344.52

LESS: payments received

from 6/1/93 to February 1995 8,344.52

Balance of the child

maintenance liability as at

February 95 (provable debt) $0.00

(b) As at the date as at 28/7/95

(Total figures for provable and

non-provable child maintenance)

Total of child maintenance

liability payable under

administrative assessments 21,399.211 [sic]

LESS: total payments received

up to 28/7/95 13,769.89

Balance of the child

maintenance liability as at

28/7/95 $7,629.32

6. All payments received by the Registrar and referred to in paragraph 5. hereof were paid by the Applicant's employer/s pursuant to notices issued under section 45(1) of the Child Support (Registration & Collection) Act 1988.

7. The Registrar did not lodged [sic] a proof of debt in the bankrupt estate of the Applicant for the provable amount of the child maintenance liability."

The common law position is that a debtor who owes two debts to a creditor is entitled to appropriate a payment to the creditor to one debt rather than the other. If
the debtor omits to make an appropriation, the creditor may do so. If neither makes any appropriation, the law appropriates the payment to the earlier debt (Re Walsh; Ex parte Deputy Commissioner of Taxation (1982) 42 ALR 727 at 728-729; Re Beckwith; Ex parte Power & Power (1993) 43 FCR 256 at 276).

The applicant by his counsel submits that the agency did not in fact make the appropriation alleged by Mr Curran and in fact appropriated the deductions made after 5 January 1993 to the current instalments as each fell due and a deduction was made from the applicant's pay by his employer. Further, it is submitted, the Child Support (Registration and Collection) Act 1988 (Cth) on its proper construction required that the instalments received after 5 January 1993 be applied in discharge of the maintenance payment in respect of which the agency claimed the right to receive the payment. On this construction there is no room for the operation of the common law rule.

It is necessary that some reference be made to the statutory scheme. The scheme, for present purposes, involves two Commonwealth Acts: The Child Support (Registration and Collection) Act 1988 (Cth) ("the CSRC") and the Child Support (Assessment) Act 1989 (Cth) ("CSA").

The liability of the applicant to pay maintenance for the children of his first marriage arose under the CSA. Applications for an administrative assessment of child support may be brought under Division 1 of Part 4 of the CSA. The jurisdictional facts in respect of which the Registrar must be satisfied are set out in s.29(2). If satisfied that an application has been properly made for administrative assessment of child support, the Registrar must accept the application (CSA s.30). By s.31 of the CSA liability to pay child support arises on acceptance of an application by the Registrar. Section 31 of the CSA provides :-

"31.(1)If the Registrar accepts an application for administrative assessment of child support for a child:

(a) the applicant is a custodian entitled to child support in relation to the child; and

(b) the person from whom the application sought payment of child support for the child is a liable parent in relation to the child; and

(c) child support is payable for the child by the liable parent to the custodian entitled to child support; and

(d) the child support is payable in relation to the days in the period:

(i) beginning on:

(A) if the application was made to the Registrar within 28 days after the earliest day or the most recent earliest day, as the case requires, on which an application for administrative assessment of child support could properly be made by the custodian entitled to child support seeking payment of child support for the child from the liable parent (in this subparagraph called "earliest entitlement day") and the liable parent did not, on or after the earliest entitlement day and before the day on which the application was made to the Registrar (in this subparagraph called the "application day"), pay or provide maintenance for the child to the custodian entitled to child support ‑ the earliest entitlement day; or

(B) if the application was not made to the Registrar within 28 days after the earliest entitlement day and the liable parent did not, on or after the earliest entitlement day and before the application day, pay or provide maintenance for the child to the custodian entitled to child support ‑ the day 28 days before the application day; or

(C) if the liable parent, on or after the earliest entitlement day and before the application day, paid or provided maintenance for the child to the custodian entitled to child support ‑ the application day; and

(ii) ending on the day immediately before the day on which a child support terminating event happens in relation to the child, the custodian entitled to child support, the liable parent or all 3 of them.

(2) The Registrar must, under this Act:

(a) as quickly as practicable assess the annual rate of the child support payable by the liable parent to the custodian entitled to child support in relation to the days in the child support year in which the application is accepted (and any earlier child support years) in relation to which child support is payable for the child; and

(b) before, or as early as practicable after, the start of each later child support year in which the child support continues to be payable for the child, assess the annual rate of the child support payable by the liable parent to the custodian entitled to child support in relation to the days in the later child support year in relation to which child support is payable for the child."

The assessment of an annual rate of child support is provided for in Division 1 of Part 5 of the CSA. The basic formula is set out in s.36 which provides :-

"36.(1)The annual rate of the child support payable, in relation to a day in a child support year, by a liable parent for the child, or all of the children, for whom child support is payable by the liable parent is the amount calculated, in relation to the liable parent in relation to that day, using the formula:

child support percentage x adjusted income amount."

A "child support year" is defined in s.5 of the CSA to mean :-

"child support year" means:

(a) the period starting on the commencing day and ending on the next 30 June; or

(b) a subsequent financial year;"

The "child support percentage", the "child support income amount" and the "exempted income amount" are provided for in s.37, s.38 and s.39 of the CSA respectively.

Section 37 provides :-

"37. The liable parent's child support percentage is the percentage ascertained using the following table:

TABLE OF CHILD SUPPORT PERCENTAGES

Number of children for Child support percentage

whom the person is a

liable parent

1 18%

2 27%

3 32%

4 34%

5 or more 36%"

Section 38 provides :-

38. The liable parent's child support income amount in relation to the days in the child support year is, subject to Division 3, the liable parent's taxable income under the Income Tax Assessment Act 1936 for the liable parent's last relevant year of income in relation to the child support year."

Section 39 provides :-

39. (1) The liable parent's exempted income amount is:

(a) if the liable parent does not have a relevant dependent child ‑ the annual amount of the relevant single rate of Social Security pension for the child support year; and

(b) if the liable parent has a relevant dependent child ‑ the aggregate of:

(i) twice the annual amount of the relevant married rate of Social Security pension for the child support year; and

(ii) the additional amount ascertained under subsection (2) for each child who is a relevant dependent child of the liable parent.

(2) The additional amount for a child who is a relevant dependent child of the liable parent is:

(a) if the child will be under 13 at the end of the child support year ‑ the amount per year referred to in paragraph 33 (4) (a) of the Social Security Act 1947 that is applicable in relation to 1 January immediately before the child support year; and

(b) if the child will be 13 or over, but under 16, at the end of the child support year ‑ the amount per year referred to in paragraph 33 (4) (b) of the Social Security Act 1947 that is applicable in relation to that 1 January; and

(c) if the child will be 16 or over at the end of the child support year ‑ 25% of twice the annual amount of the relevant married rate of Social Security pension for the child support year."

Division 2 of Part 5 provides for variations and departures from the basic formula which are not presently relevant.

The liability to pay the child support as assessed is provided in Division 5 of Part 5 of the CSA. Section 77 provides :-

77. Where the Registrar:

(a) assesses the annual rate of child support payable for a child or children, in relation to a day in a child support year, by a liable parent to a custodian entitled to child support; and

(b) converts the annual rate into a daily rate and specifies both rates in a notice of assessment given under section 76 in relation to the assessment;

the amount of the child support payable for the child or children in relation to that day by the liable parent to the custodian entitled to child support is the amount of the daily rate specified in the notice of assessment."

Section 78 provides :-

"78. An amount of child support payable in relation to a day in any month is due and payable:

(a) on the 7th day of the following month; or

(b) on the 30th day after the liable parent concerned was given a notice of assessment under section 76 specifying the annual and daily rates of child support in relation to that day;

whichever is the later."

Under the CSA the amount of child support due and payable by a liable parent to the custodian entitled to child support may be recovered by the custodian as a debt due (CSA s.79).

A liability to pay child support under an administrative assessment under the CSA is a registrable maintenance liability under the CSRC (s.17 and the definition of "child support assessment") and must be immediately registered under the CSRC when made. Upon registration, the particulars of liability, including the periodic rate of payment and periods at which amounts are payable under the liability, are entered into the Child Support Register (CSRC s.24A(1)). The effect of registration is provided for in s.30 of the CSRC :-

"30. Where a registrable maintenance liability is registered under this Act:

(a) amounts payable under the liability in relation to the child support enforcement period are debts due by the payer to the Commonwealth in accordance with the particulars of the liability entered in the Register; and

(b) the payee is not entitled to, and may not enforce payment of, those amounts."

The collection of the liability is generally by what the CSRC calls "automatic withholding". The CSRC provides :-

"43(1) Subject to subsection (2), where the payer of an enforceable maintenance liability is an employee, the Registrar shall, as far as practicable, collect amounts due to the Commonwealth under or in relation to the liability by deduction from the salary or wages of the payer under this Part.

(2) Subsection (1) applies in relation to an enforceable maintenance liability whether or not the particulars in the entry in the Child Support Register in relation to the liability contain a statement that automatic withholding applies in relation to the liability, but does not apply in relation to the liability if, by virtue of section 44, the particulars contain a statement that automatic withholding does not apply in relation to the liability."

By s.45(1) of the CSRC notification is to be given to the employer :-

"45(1) The Registrar may, for the purpose of collecting amounts due to the Commonwealth under or in relation to an enforceable maintenance liability by deduction from the salary or wages of the payer under this Part, give a notice in writing to an employer of the payer:

(a) specifying the name of the payer and other particulars of the payer sufficient to enable the payer to be identified by the employer; and

(b) instructing the employer:

(i) to make in accordance with section 46, as from a specified day, periodic deductions in accordance with the specified weekly deduction rate from salary or wages paid by the employer to the payer; and

(ii) to pay to the Registrar in accordance with subsection 47(1) amounts so deducted."

The "specified weekly deduction rate" referred to in s.45(1) is the weekly rate of payment specified in the particulars in the Child Support Register (CSRC s.5).

An employer who receives a notice is obliged to make a deduction from the wages or salary in accordance with s.46 of the CSRC. Sub-sections 46(2), (3) and (4) provide :-

"46(2) Subject to subsection (4), the amount of the deduction is the amount ascertained by applying the weekly deduction rate specified in the notice to the period in relation to which the salary or wages are paid.

(3) Where the amount of the salary or wages is less than the amount (in subsection (4) called the `protected earnings amount') ascertained by applying the protected earnings rate to the period in relation to which the salary or wages are paid, no deduction shall be made.

(4) Where the amount of the salary or wages exceeds the amount of the deduction that would, but for this subsection, be required to be made from the salary or wages by less than the protected earnings amount, the amount of the deduction is the amount by which the amount of the salary or wages exceeds the protected earnings amount."

The effect of a payment by an employer of the deduction is provided for in s.49 of the CSRC :-

"49. Where an employer deducts an amount under this Part from the salary or wages of the payer of an enforceable maintenance liability:

(a) the payer is, to the extent of the amount deducted, discharged from the payer's liability to make payments to the Registrar under or in relation to the liability, as the case requires; and

(b) the employer is discharged from liability to pay the amount to any person other than the Registrar."

By s.66 of the CSRC an amount that becomes a child support debt in any month is due and payable on the seventh day of the following month. A child support debt (ie. a debt due to the Commonwealth under s.30) which remains unpaid after the time when it became due and payable attracts a penalty for late payment (CSRC s.67) which itself becomes a debt due to the Commonwealth.

In my view, the legislative scheme is to provide for the administrative assessment by the Registrar of child support maintenance for a child support year as defined. That liability is calculated firstly on a child support year basis which may or may not be a full financial year commencing on 1 July in any year depending upon the commencement date and termination date of the liability to pay child support maintenance. The sum so assessed does not become immediately due and payable or payable as a lump sum. Rather, under the CSA and the CSRC it becomes due on the seventh day in the month following a month in which one or more days child support becomes a child support debt (as defined). Until that time the debt is unenforceable and does not attract penalty under the CSRC. Nevertheless, it is an identifiable debt for an identifiable period being the sum and period particularised in the Child Support Register. That the debt has a particular identity referrable to a particular period is apparent from the obligations which the CSRC places upon an employer and the penalties attaching to non-performance of those obligations. The employer's obligation falls due at the same time as the obligation of the supporting parent to pay. A failure to deduct and pay the child support debt exposes the employer to a penalty which includes a liability on the part of the employer to pay an amount equal to the undeducted child support debt (see CSRC ss.51, 52).

In any monthly period the child support debt which arises in that month and in respect of which the CSRC imposes obligations on the supporting parent and the employer is the same child support debt. It is the debt which identifies the liability due and payable on the seventh day of the following month either by payment by the supporting parent or payment by the employer after deduction from the wages or salary of the parent. Therefore, when payment is made by an employer on or before the seventh
day of the succeeding month, it is a payment which the statute makes payable in respect of the child support debt of the previous month. The payment discharges that debt and thereby satisfies the employer's obligations under the CSRC. The employer does not become liable to pay a penalty under s.51 of the CSRC. Accordingly, when s.49 speaks of the payer being discharged from the payer's liability to make payments to the Registrar the section is speaking of a discharge of the payer's (supporting parent) liability for the child support debt in respect of which the deduction is made. That is, once the deduction is made from wages to satisfy the periodic assessment notified to the employer for the specified period, the employer becomes the person liable to make the payment. The liability in that month as far as the supporting parent is concerned has been satisfied by the deduction from wages which the parent does not receive and which is irrecoverable by the supporting parent from the employer (CSRC s.49(b)). Importantly, from the supporting parent's position, once deducted there is no child support debt due and payable by the parent for the purposes of ss.66 and 67 of the CSRC. Recovery of the child support maintenance after deduction lies against the employer who made the deduction, not against the parent.

In the present case, deductions made by the applicant's employer and paid to the Registrar after 5 January 1993 operated to discharge the applicant in respect of his enforceable maintenance liability in the periodic amounts deducted for the specific periods in respect of which the deductions were made. Because there has been no default in payment of child support by the applicant since 5 January 1993, he has not been liable to pay any penalty under s.67 of the CSRC and therefore no penalty was lawfully chargeable against him for any alleged default or late payment since that time.

The statutory scheme does not allow the Registrar to appropriate a payment when received from an employer to an earlier and different debt and thereby expose the supporting parent to penalty in respect of a child support debt where the required deduction has been made by the employer and payment made to the Agency. When the deduction is made there remains no child support debt due in respect of the maintenance liability which authorised the making of the deduction for that month. In the instant case, when payment was received by the Deputy Registrar after 5 January 1993, there was not then in existence two categories of debt, one being debt which had accrued prior to 5 January 1993 and the other being debt accruing after that date. There remained only those debts which had accrued up to 5 January 1993.

As at 5 January 1993, according to a notification to the applicant from the Deputy Registrar of 31 May 1994, there was due and owing by the applicant $9,377.49. On the evidence of Mr Curran, $8,344.52 was child maintenance liability. The balance of the amount claimed, namely $1,032.97, must therefore have been penalty under the CSRC. Both sides are agreed that no penalties survive the bankruptcy and the applicant's liability in respect thereof was discharged by the bankruptcy.

Having regard to the view which I have taken as to the operation of the statutory scheme, I am satisfied that the child maintenance liability in the sum of $8,344.52 as at 5 January 1993 was not discharged by the bankruptcy and was not discharged by any effective appropriation on the part of the Deputy Registrar, or, in the absence of appropriation, by the operation of the common law rule.

If I am incorrect in my view of the scheme and it remained open to the Deputy Registrar to appropriate payments received after 5 January 1993 between debts accrued prior to that date and debts due after that date, then I am satisfied that payments received after 5 January 1993 were appropriated to maintenance liability arising after that date. The letter of the Agency of 31 May 1994 is only explicable on that basis. The letter said :-

"Dear Mr Stewart

The Child Support Agency has been notified that you became bankrupt on 5 January 1993. Your outstanding child support debt at that date was $9,377.49.

As a creditor the Agency is entitled to a share in any dividend which may be paid by your Trustee. The Agency will correspond with your Trustee in regard to this matter.

Your child support liability is afforded special conditions under the Bankruptcy Act 1966 when you become bankrupt. In addition to the right to prove in the bankruptcy the Agency has special rights under the Bankruptcy Act 1966 to collect the full amount of the debt directly from you despite your bankruptcy. This is because the debt arises under a `maintenance agreement or maintenance order' as referred to in subsection 58(5A) of the Bankruptcy Act 1966. That provision provides that a creditor may enforce payments of such a debt against a bankrupt in respect of any property not vested in the trustee.

Furthermore, the full amount of the debt remaining uncollected is not discharged automatically upon your discharge from bankruptcy. It will only be discharged if the Court makes a specific order that it be discharged under subsection 153(2A) of the Bankruptcy Act 1966.

If you should have any further queries please do not hesitate to contact Robert at the Child Support Agency, Brisbane on (07) 213 5005, or at the above address.

Yours sincerely,

W.D. Mulherin

Deputy Child Support Registrar"

It is not a sufficient answer for counsel for the Deputy Registrar to say that the letter is unfortunate or inexplicable nor to say that there is a policy and a computer program which credits payments against the oldest debt. The calculation in paragraph 5 of Mr Curran's affidavit set out above merely shows a balance due after totalling all debts for child support on the debit side and all payments received on the credit side and off-setting one against the other. It does not show and does not necessarily mean that the payments outstanding are the most recent in point of time or conversely the oldest.

The contents of the letter of 31 May 1994 are consistent with National Enforcement Guideline No. 5 on the effect of bankruptcy issued by the Child Support Agency on 11 July 1994. On the effect of discharge, the Guideline states in paragraphs 16-18 inclusive :-

"16. Upon discharge from bankruptcy, the bankrupt is not automatically discharged from a debt payable pursuant to a maintenance agreement or maintenance order. Subsection 153(2A) of the Bankruptcy Act allows the Court to make an order discharging the bankrupt from all or part of that debt. The bankrupt will have to ask for such an order to be made.

17. After the discharge from bankruptcy, the Registrar is still able to recover the child support or maintenance debt relating to the period before bankruptcy. (The Registrar cannot recover penalties relating to that period as they are not provided special protection and are automatically discharged upon the bankrupt's discharge from bankruptcy).

18. Upon being notified of the bankrupt's discharge, the Registrar will not discharge the maintenance portion of the registered child support debt unless the Court has made an order under subsection 153(2A). The Registrar will discharge the penalties as these are not recoverable. A bankrupt will need to provide a copy of an order specifically discharging the bankrupt from child support debts before any alteration is made to the maintenance debt on the Child Support Register."

It is submitted by counsel for the Agency that the off-setting of the post-bankruptcy receipts against the pre-bankruptcy child support debt is provided for by earlier paragraphs of the Guidelines, in particular paragraph 10. Under the heading "Collection During Bankruptcy" the Guidelines, in paragraphs 8-11 provide :-

"8. As stated above, liabilities registered under the Registration and Collection Act fall within the term `maintenance agreement or maintenance order' which is defined in subsection 5(1) of the Bankruptcy Act. Debts falling within that definition are afforded some special protection where the debtor becomes bankrupt. These concessional provisions only apply to the maintenance component of the debt and do not allow the Registrar to continue to take action to recover penalties.

9. The provable debt should remain registered at all times during bankruptcy so that any amounts received can be applied against it.

Administrative Collection

10. The Registrar can continue to collect the provable debt (except for penalties) by salary deduction (arrears by auto-withholding) and by intercepting income tax refunds and other amounts under section 72 of the Registration and Collection Act. The Registrar will, of course, also collect any ongoing liability for child support through salary deductions.

11. A notice under section 72A of the Registration and Collection Act is effective against the divisible property of the bankrupt provided it was served before the date of bankruptcy. If the notice is served after the date of bankruptcy, it only has effect against any non-divisible property (this being property which does not vest in the trustee and remains in the possession and control of the bankrupt."

When paragraph 10 speaks of collection by salary deduction (arrears by auto-withholding) it is speaking of deductions specifically for arrears and not for ongoing liability for child support through salary deductions. The distinction between the two is clear in paragraph 10. That the auto-withholding for arrears is something additional to and not in lieu of collections for ongoing liability is made plainly in the final sentence of the paragraph.

In this case, the Deputy Registrar only ever purported to collect the ongoing (ie. post-bankruptcy) liability for child support through salary deductions. The Deputy Registrar did not seek to recover arrears by auto-withholding until 10 July 1995 when the agency proposed to increase the deductions by $60.00 per week. This would have increased the applicant's fortnightly payment from $227.79 to $347.74. It was this proposed increase which led to the bringing of this application.

The Deputy Registrar submits that the power under s.153(2A) of the Bankruptcy Act to release a bankrupt from liability to pay arrears due under a maintenance agreement or order is discretionary and that the discretion ought to be exercised by reference to the same principles which were applicable to the discharge by the court of a bankrupt from bankruptcy. In this regard the Deputy Registrar submits that the observations of Lockhart J in Re Reilly; Ex parte The Debtor (1979) 36 FLR 268 at 278, where his Honour said :-

"In considering whether a bankrupt should receive a discharge it has been laid down repeatedly that the court must have regard not only to the interests of the bankrupt and his creditors but also to the interests of the public and of commercial morality. In the exercise of its discretion the court must also consider the conduct of the bankrupt relevant to his bankruptcy."

are of assistance and that the interests of the custodial parent, the children and the general child support scheme should be substituted for the interests of commercial morality.

I am not sure that the relevant circumstances identified in Reilly are directly applicable. However, they are indicative of a general approach taken by the court to identify those interests sought to be benefited by the operation of the Bankruptcy Act and which ought to be considered on any exercise of discretion.

There is no doubt that the exception of maintenance liability from the general operation of s.153(1) of the Bankruptcy Act reflects the importance which the legislature attaches to the satisfaction of enforceable maintenance liabilities. It goes without saying that the custodial parents, the children, and the public in general, have a real interest in seeing such obligations discharged. However s.153(2A) by its very existence recognises that there may be some circumstances wherein it is appropriate to grant relief from the obligations and in those circumstances the legislature must have had in mind that the public interest was best served by the making of an order for discharge.

One of the matters identified in Reilly by Lockhart J as relevant to a discharge from bankruptcy and the retention of post-bankruptcy income was the ability of the bankrupt to support himself or herself and his or her family. His Honour said (at 279-280) :-

"It has been said by the authorities more than once that unless the court is satisfied that a man in receipt of income derived from his earnings or otherwise will be able to provide support for himself and his dependants to live on, or is satisfied that he is likely to inherit or otherwise succeed to property, it ought not to impose unduly burdensome conditions so that he cannot improve his position in life and remove all incentive for exertion on his part. In Re Hawkins; Ex parte Official Receiver Vaughan Williams J. (as his Lordship then was) said: `The reason why an undischarged bankrupt is entitled to retain his personal earnings is, that he must be allowed to support himself and those whom it is his legal duty to support, and that he cannot be converted into a mere slave or personal chattel of his creditors.' [1892] 1 Q.B. 890, at p.893."

That there is a tension between the needs of a second or subsequent family unit, including defacto relationships and blended families and the obligation to support the children and sometimes partners of an earlier relationship was recognised and discussed in detail in the report of the Joint Select Committee on Certain Family Law Issues: The
Operation and Effectiveness of the Child Support Scheme (AGPS November 1994 at chapter 18, pp.389 ff). The issues involved are complex. Where there is, as in the present case, a second marriage with a partner who has children from a previous relationship and where all live as one family unit, it is relevant to the exercise of the discretion to consider the ability of the applicant to discharge the arrears of maintenance and to support himself and his new family. If there is an ability to discharge the arrears, then as a general proposition, one would incline against making an order discharging the liability. On the other hand, if there is no likelihood of the arrears ever being discharged the interests of the custodial parent and children of the former marriage are not served by having the liability hanging over the applicant with no prospect of it being discharged.

The Deputy Registrar has not challenged the details of the applicant's financial circumstances, including those of his second wife. The family has a home valued at approximately $74,500.00 of which $71,000.00 is owed to a building society. The wife has a 1972 Datsun motor vehicle. One child has learning disabilities and has special needs which involve additional expenses. The net income of the applicant is $650.00 per fortnight and the net income of the wife is $420.00 per fortnight. After the payment of $227.79 per fortnight for the current maintenance of the two children of his former marriage, the applicant deposes that the available family income is only sufficient to provide the family with necessities. The applicant deposes that it would be impossible for him to repay the arrears out of income, maintain his present family and continue to pay his child support obligation to the two children of his former marriage. He has not been challenged on this issue. Looking at the material, it is unlikely that he will ever be in a position to pay the arrears.

In my view, the public interest, the interest of the applicant's children and the interests of present family are best served by the applicant maintaining the payment of the current liability to support the children of his first marriage and providing for himself and his present family as he is currently doing. To that end the applicant ought to be relieved from the existing liability for arrears for child support due as at 5 January 1993.

It seems likely that the Deputy Registrar has claimed and received penalties from the applicant for alleged default and late payment since 5 January 1993. If that is so, such sums were not payable for reasons which I have given above and that money would in the ordinary course be recoverable by the applicant, the retention of it by the Deputy Registrar being unconscionable. However, the benefit of any such payment having incorrectly been claimed and received by deduction on account of penalty should go to the applicant's children to diminish the liability for arrears. The amount, if any, having been paid in the past causes no further hardship on the applicant if it is now paid to the benefit of the children.

The Deputy Registrar has appeared and unsuccessfully contested the application to have the arrears discharged. However, the applicant would in any event have had to make the application to obtain the exercise of discretion. Therefore, the opposition by the Deputy Registrar has not led to any additional cost being incurred. Accordingly each party should bear its own costs.

THE COURT ORDERS THAT:

2. Each party bear its own costs of and incidental to the application.

I certify that this and the preceding twenty-one (21) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.

Date: 10 October 1995

Associate

Counsel for the Applicant: Mr C Wilson

Solicitors for the Applicant: Richard Zande & Associates

Counsel for the Respondent: Mr P Toy

Solicitors for the Respondent: Australian Government Solicitor

Date of Hearing: 28 July 1995

Place of Hearing: Brisbane

Date of Judgment: 10 October 1995

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